orming an opinion and eporting on inancial...

SA 700∗ FORMING AN OPINION AND REPORTING ON

FINANCIAL STATEMENTS (Effective for all audits relating to

accounting periods beginning on or after April 1, 20111)

Contents

Paragraph(s) Introduction

Scope of this SA ..................................................................................... 1-4

Effective Date ........................................................................................... 5

Objectives ................................................................................................ 6

Definitions ............................................................................................ 7-9 Requirements Forming an Opinion on the Financial Statements ............................. 10-15

Form of Opinion ................................................................................ 16-19

Auditor’s Report ................................................................................ 20-45

Supplementary Information Presented with the Financial Statements ........................................................................ 46-47

Application and Other Explanatory Material Qualitative Aspects of the Entity’s Accounting Practices ................. A1-A3

Disclosure of the Effect of Material Transactions and Events on the Information Conveyed in the Financial Statements ............................... A4

∗Published in February, 2010 issue of the Journal. 1 The Council of the ICAI, in partial modification of the decision taken by it at its 291st meeting held in December 2009, has decided that the effective date/applicability of three standards viz SA 700 (Revised), SA 705 and SA 706 be postponed by one year and consequently the said Standards shall now be effective/applicable for audits of financial statements for periods beginning on or after 1st April, 2012 (instead of audits of financial statements for periods beginning on or after 1st April, 2011 as was earlier decided).

Forming an Opinion and Reporting on Financial Statements

SA 700 785

Description of the Applicable Financial Reporting Framework ....... A5-A10

Form of Opinion ........................................................................... A11-A12

Auditor’s Report ........................................................................... A13-A43

Supplementary Information Presented with the Financial Statements .................................................................... A44-A50

Material Modifications vis-a-vis ISA 700, “Forming an Opinion and Reporting on Financial Statements”

Appendix: Illustrative Formats of Auditors’ Reports on Financial Statements

Standard on Auditing (SA) 700 (Revised), “Forming an Opinion and Reporting on Financial Statements”, should be read in the context of the “Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services2”, which sets out the authority of SAs and SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing3”. 2 Published in July, 2007 issue of the Journal. 3 Published in March, 2010 issue of the Journal.

Handbook of Auditing Pronouncements‐I.A

SA 700 786

Introduction Scope of this SA 1. This Standard on Auditing (SA) deals with the auditor’s responsibility to form an opinion on the financial statements. It also deals with the form and content of the auditor’s report issued as a result of an audit of financial statements. 2. SA 7054 and SA 7065 deal with how the form and content of the auditor’s report are affected when the auditor expresses a modified opinion or includes an Emphasis of Matter paragraph or an Other Matter paragraph in the auditor’s report. 3. This SA is written in the context of a complete set of general purpose financial statements. SA 8006 deals with special considerations when financial statements are prepared in accordance with a special purpose framework. SA 8057 deals with special considerations relevant to an audit of a single financial statement or of a specific element, account or item of a financial statement. 4. This SA promotes consistency in the auditor’s report. Consistency in the auditor’s report, when the audit has been conducted in accordance with SAs, promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in accordance with globally recognised standards. It also helps to promote the user’s understanding and to identify unusual circumstances when they occur. Effective Date 5. This SA is effective for audits of financial statements for periods beginning on or after April 1, 2011.

Objectives 6. The objectives of the auditor are to: (a) Form an opinion on the financial statements based on an evaluation of the

conclusions drawn from the audit evidence obtained; and (b) Express clearly that opinion through a written report that also describes the

basis for the opinion. 4 SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”. 5 SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”. 6 SA 800, “Special Considerations–Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks”. 7 SA 805, “Special Considerations–Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement”.


SA 700 787

Definitions 7. For purposes of the SAs, the following terms have the meanings attributed below: (a) General purpose financial statements – Financial statements prepared in

accordance with a general purpose framework8. (b) General purpose framework – A financial reporting framework designed to

meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework. The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and: (i) Acknowledges explicitly or implicitly that, to achieve fair presentation

of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or

(ii) Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances.

The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (i) or (ii) above9.

(c) Unmodified opinion – The opinion expressed by the auditor when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework10.

8. Reference to “financial statements” in this SA means “a complete set of general purpose financial statements, including the related notes”. The related notes ordinarily comprise a summary of significant accounting policies and other 8 Paragraph 3.4 of the Revised Preface to the Statements of Accounting Standards issued by the Institute of Chartered Accountants of India in 2004 states as follows:

“The term “General Purpose Financial Statements” includes balance sheet, statement of profit and loss, a cash flow statement (wherever applicable) and statements and explanatory notes which form part thereof, issued for the use of various stakeholders, Governments and their agencies and the public………”.

9 SA 200, Paragraph 13(a). 10 Paragraphs 35-36 deal with the phrases used to express this opinion in the case of a fair presentation framework and a compliance framework respectively.


SA 700 788

explanatory information. The requirements of the applicable financial reporting framework determine the form and content of the financial statements, and what constitutes a complete set of financial statements. 9. Reference to “Financial Reporting Standards” in this SA means the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) or Accounting Standards, notified by the Central Government by publishing the same as the Companies (Accounting Standards) Rules, 2006, or the Accounting Standards for Local Bodies issued by the Institute of Chartered Accountants of India, as may be applicable.

Requirements Forming an Opinion on the Financial Statements 10. The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.11 & 12 11. In order to form that opinion, the auditor shall conclude as to whether the auditor has obtained reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. That conclusion shall take into account: (a) The auditor’s conclusion, in accordance with SA 330, whether sufficient

appropriate audit evidence has been obtained;13 (b) The auditor’s conclusion, in accordance with SA 450, whether uncorrected

misstatements are material, individually or in aggregate;14 and (c) The evaluations required by paragraphs 12-15. 12. The auditor shall evaluate whether the financial statements are prepared, in all material respects, in accordance with the requirements of the applicable financial reporting framework. This evaluation shall include consideration of the qualitative aspects of the entity’s accounting practices, including indicators of possible bias in management’s judgments. (Ref: Para. A1-A3) 13. In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework: (a) The financial statements adequately disclose the significant accounting 11 SA 200, paragraph 11. 12 Paragraphs 35-36 deal with the phrases used to express this opinion in the case of a fair presentation framework and a compliance framework, respectively. 13 SA 330, “The Auditor’s Responses to Assessed Risks”, paragraph 26. 14 SA 450, “Evaluation of Misstatements Identified during the Audit”, paragraph 11.


SA 700 789

policies selected and applied; (b) The accounting policies selected and applied are consistent with the

applicable financial reporting framework and are appropriate; (c) The accounting estimates made by management are reasonable; (d) The information presented in the financial statements is relevant, reliable,

comparable and understandable; (e) The financial statements provide adequate disclosures to enable the

intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and (Ref: Para. A4)

(f) The terminology used in the financial statements, including the title of each financial statement, is appropriate.

14. When the financial statements are prepared in accordance with a fair presentation framework, the evaluation required by paragraphs 12-13 shall also include whether the financial statements achieve fair presentation. The auditor’s evaluation as to whether the financial statements achieve fair presentation shall include consideration of: (a) The overall presentation, structure and content of the financial statements;

and (b) Whether the financial statements, including the related notes, represent the

underlying transactions and events in a manner that achieves fair presentation.

15. The auditor shall evaluate whether the financial statements adequately refer to or describe the applicable financial reporting framework. (Ref: Para. A5-A10)

Form of Opinion 16. The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. 17. If the auditor: (a) concludes that, based on the audit evidence obtained, the financial

statements as a whole are not free from material misstatement; or (b) is unable to obtain sufficient appropriate audit evidence to conclude that the

financial statements as a whole are free from material misstatement, the auditor shall modify the opinion in the auditor’s report in accordance with SA 705.


SA 700 790

18. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor shall discuss the matter with management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, shall determine whether it is necessary to modify the opinion in the auditor’s report in accordance with SA 705. (Ref: Para. A11) 19. When the financial statements are prepared in accordance with a compliance framework, the auditor is not required to evaluate whether the financial statements achieve fair presentation. However, if in extremely rare circumstances the auditor concludes that such financial statements are misleading, the auditor shall discuss the matter with management and, depending on how it is resolved, shall determine whether, and how, to communicate it in the auditor’s report. (Ref: Para. A12)

Auditor’s Report 20. The auditor’s report shall be in writing. (Ref: Para. A13-A14) Auditor’s Report for Audits Conducted in Accordance with Standards on Auditing Title

21. The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor. (Ref: Para. A15) Addressee

22. The auditor’s report shall be addressed as required by the circumstances of the engagement. (Ref: Para. A16) Introductory Paragraph

23. The introductory paragraph in the auditor’s report shall: (Ref: Para. A17-A19) (a) Identify the entity whose financial statements have been audited; (b) State that the financial statements have been audited; (c) Identify the title of each statement that comprises the financial statements; (d) Refer to the summary of significant accounting policies and other

explanatory information; and (e) Specify the date or period covered by each financial statement comprising

the financial statements. Management’s Responsibility for the Financial Statements


SA 700 791

24. This section of the auditor’s report describes the responsibilities of those in the organisation that are responsible for the preparation of the financial statements. The auditor’s report need not refer specifically to “management”, but shall use the term that is appropriate in the context of the legal and/or regulatory framework applicable to the entity. In case of some entities, the appropriate reference may be to those charged with governance*. 25. The auditor’s report shall include a section with the heading “Management’s [or other appropriate term] Responsibility for the Financial Statements”. 26. The auditor’s report shall describe management’s responsibility for the preparation of the financial statements in the manner in which that responsibility is described in the terms of the audit engagement. The description shall include an explanation that management is responsible for the preparation of the financial statements in accordance with the applicable financial reporting framework; this responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. (Ref: Para. A20-A22) 27. Where the financial statements are prepared in accordance with a fair presentation framework, the explanation of management’s responsibility for the financial statements in the auditor’s report shall refer to “the preparation and fair presentation of these financial statements” or “the preparation of financial statements that give a true and fair view”, as appropriate in the circumstances. Auditor’s Responsibility

28. The auditor’s report shall include a section with the heading “Auditor’s Responsibility”. 29. The auditor’s report shall state that the responsibility of the auditor is to express an opinion on the financial statements based on the audit. (Ref: Para. A23) 30. The auditor’s report shall state that the audit was conducted in accordance with Standards on Auditing issued by the Institute of Chartered Accountants of India. The auditor’s report shall also explain that those Standards require that the auditor comply with ethical requirements and that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. (Ref: Para. A24-A25) 31. The auditor’s report shall describe an audit by stating that: * For example, the Board of Directors under the Companies Act, 1956.


SA 700 792

(a) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements;

(b) The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. In circumstances when the auditor also has a responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, the auditor shall omit the phrase that the auditor’s consideration of internal control is not for the purpose of expressing an opinion on the effectiveness of internal control; and

(c) An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as the overall presentation of the financial statements.

32. Where the financial statements are prepared in accordance with a fair presentation framework, the description of the audit in the auditor’s report shall refer to “the entity’s preparation and fair presentation of the financial statements” or “the entity’s preparation of financial statements that give a true and fair view”, as appropriate in the circumstances. 33. The auditor’s report shall state whether the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion. Auditor’s Opinion

34. The auditor’s report shall include a section with the heading “Opinion”. 35. When expressing an unmodified opinion on financial statements prepared in accordance with a fair presentation framework, the auditor’s opinion shall, unless otherwise required by law or regulation, use one of the following phrases, which are regarded as being equivalent: (Ref: Para. A26-A32) (a) The financial statements present fairly, in all material respects, in

accordance with [the applicable financial reporting framework]; or (b) The financial statements give a true and fair view of in accordance with [the

applicable financial reporting framework].


SA 700 793

36. When expressing an unmodified opinion on financial statements prepared in accordance with a compliance framework, the auditor’s opinion shall be that the financial statements are prepared, in all material respects, in accordance with [the applicable financial reporting framework]. (Ref: Para. A26, A28-A32) 37. If the reference to the applicable financial reporting framework, in the auditor’s opinion, is not to the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) or Accounting Standards, notified by the Central Government by publishing the same as the Companies (Accounting Standards) Rules, 2006, or the Accounting Standards for Local Bodies issued by the Institute of Chartered Accountants of India, as may be applicable, the auditor’s opinion shall identify the jurisdiction of origin of the framework. Other Reporting Responsibilities

38. If the auditor addresses other reporting responsibilities in the auditor’s report on the financial statements that are in addition to the auditor’s responsibility under the SAs to report on the financial statements, these other reporting responsibilities shall be addressed in a separate section in the auditor’s report that shall be sub-titled “Report on Other Legal and Regulatory Requirements,” or otherwise as appropriate to the content of the section. (Ref: Para. A33-A34) 39. If the auditor’s report contains a separate section on other reporting responsibilities, the headings, statements and explanations referred to in paragraphs 23-37 shall be under the sub-title “Report on the Financial Statements.” The “Report on Other Legal and Regulatory Requirements” shall follow the “Report on the Financial Statements.” (Ref: Para. A35) Signature of the Auditor

40. The auditor’s report shall be signed. (Ref: Para. A36) Date of the Auditor’s Report

41. The auditor’s report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements, including evidence that: (Ref: Para. A37-A40) (a) All the statements that comprise the financial statements, including the

related notes, have been prepared; and (b) Those with the recognised authority have asserted that they have taken

responsibility for those financial statements.


SA 700 794

Place of Signature

42. The auditor’s report shall name specific location, which is ordinarily the city where the audit report is signed. Auditor’s Report Prescribed by Law or Regulation 43. If the auditor is required by any law or regulation to use a specific layout or wording of the auditor’s report, the auditor’s report shall refer to Standards on Auditing only if the auditor’s report includes, at a minimum, each of the following elements: (Ref: Para. A41) (a) A title; (b) An addressee, as required by the circumstances of the engagement; (c) An introductory paragraph that identifies the financial statements audited; (d) A description of the responsibility of management (or other appropriate

term, see paragraph 24) for the preparation of the financial statements; (e) A description of the auditor’s responsibility to express an opinion on the

financial statements and the scope of the audit, that includes:

• A reference to Standards on Auditing and the law or regulation; and

• A description of an audit in accordance with those Standards; (f) An opinion paragraph containing an expression of opinion on the financial

statements and a reference to the applicable financial reporting framework used to prepare the financial statements (including identifying the jurisdiction of origin of the financial reporting framework, see paragraph 37);

(g) The auditor’s signature; (h) The date of the auditor’s report; and (i) The place of signature. Auditor’s Report for Audits Conducted in Accordance with Both Auditing Standards issued by the Institute of Chartered Accountants of India and International Standards on Auditing 44. An auditor may be required to conduct an audit in accordance with the auditing Standards issued by the Institute of Chartered Accountants of India (the “national auditing standards”), but may additionally have complied with the International Standards on Auditing (ISAs) in the conduct of the audit. If this is the case, the auditor’s report may refer to International Standards on Auditing in addition to the national auditing standards, but the auditor shall do so only if: (Ref: Para. A42-A43)


SA 700 795

(a) There is no conflict between the requirements in the national auditing standards and those in ISAs that would lead the auditor (i) to form a different opinion, or (ii) not to include an Emphasis of Matter paragraph that, in the particular circumstances, is required by ISAs; and

(b) The auditor’s report includes, at a minimum, each of the elements set out in paragraph 43(a)-(i) when the auditor uses the layout or wording specified by the national auditing standards. Reference to law or regulation in paragraph 43(e) shall be read as reference to the national auditing standards. The auditor’s report shall thereby identify such national auditing standards.

45. When the auditor’s report refers to both the national auditing standards and International Standards on Auditing, the auditor’s report shall identify the national auditing standards being the Standards on Auditing issued by the Institute of Chartered Accountants of India.

Supplementary Information Presented with the Financial Statements (Ref: Para. A44-A50) 46. If supplementary information that is not required by the applicable financial reporting framework is presented with the audited financial statements, the auditor shall evaluate whether such supplementary information is clearly differentiated from the audited financial statements. If such supplementary information is not clearly differentiated from the audited financial statements, the auditor shall ask management to change how the unaudited supplementary information is presented. If management refuses to do so, the auditor shall explain in the auditor’s report that such supplementary information has not been audited.

47. Supplementary information that is not required by the applicable financial reporting framework but is nevertheless an integral part of the financial statements because it cannot be clearly differentiated from the audited financial statements due to its nature and how it is presented shall be covered by the auditor’s opinion.

***

Application and Other Explanatory Material Qualitative Aspects of the Entity’s Accounting Practices (Ref: Para. 12) A1. Management makes a number of judgments about the amounts and disclosures in the financial statements.


SA 700 796

A2. SA 260 contains a discussion of the qualitative aspects of accounting practices15. In considering the qualitative aspects of the entity’s accounting practices, the auditor may become aware of possible bias in management’s judgments. The auditor may conclude that the cumulative effect of a lack of neutrality, together with the effect of uncorrected misstatements, causes the financial statements as a whole to be materially misstated. Indicators of a lack of neutrality that may affect the auditor’s evaluation of whether the financial statements as a whole are materially misstated include the following:

• The selective correction of misstatements brought to management’s attention during the audit (e.g., correcting misstatements with the effect of increasing reported earnings, but not correcting misstatements that have the effect of decreasing reported earnings).

• Possible management bias in the making of accounting estimates. A3. SA 540 addresses possible management bias in making accounting estimates16. Indicators of possible management bias do not constitute misstatements for purposes of drawing conclusions on the reasonableness of individual accounting estimates. They may, however, affect the auditor’s evaluation of whether the financial statements as a whole are free from material misstatement.

Disclosure of the Effect of Material Transactions and Events on the Information Conveyed in the Financial Statements (Ref: Para. 13(e)) A4. It is common for financial statements prepared in accordance with a general purpose framework to present an entity’s Balance Sheet, Statement of Profit and Loss and Cash Flow Statement. In such circumstances, the auditor evaluates whether the financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the entity’s state of affairs, results of operations and cash flows.

Description of the Applicable Financial Reporting Framework (Ref: Para. 15) A5. As explained in SA 200, management and, where appropriate, those charged with governance have responsibility for the preparation of the 15 SA 260, “Communication with Those Charged with Governance”, Appendix. 16 SA 540, “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures”, paragraph 21.


SA 700 797

financial statements in accordance with the applicable financial reporting framework and for an adequate description of that framework in the financial statements17. That description is important because it advises users of the financial statements of the framework on which the financial statements are based. A6. A description that the financial statements are prepared in accordance with a particular applicable financial reporting framework is appropriate only if the financial statements comply with all the requirements of that framework that are effective during the period covered by the financial statements. A7. A description of the applicable financial reporting framework that contains imprecise qualifying or limiting language (e.g., “the financial statements are in substantial compliance with Financial Reporting Standards18”) is not an adequate description of that framework as it may mislead users of the financial statements. Reference to More than One Financial Reporting Framework A8. In some cases, the financial statements may represent that they are prepared in accordance with two financial reporting frameworks (e.g., the national framework and International Financial Reporting Standards). This may be because management is required, or has chosen, to prepare the financial statements in accordance with both frameworks, in which case both are applicable financial reporting frameworks. Such description is appropriate only if the financial statements comply with each of the frameworks individually. To be regarded as being prepared in accordance with both frameworks, the financial statements need to comply with both frameworks simultaneously and without any need for reconciling statements. In practice, simultaneous compliance is unlikely unless the jurisdiction has adopted the other framework (e.g., International Financial Reporting Standards) as its own national framework, or has eliminated all barriers to compliance with it. A9. Financial statements that are prepared in accordance with one financial reporting framework and that contain a note or supplementary statement reconciling the results to those that would be shown under another framework, are not prepared in accordance with that other framework. This is because the financial statements do not include all the information in the manner required by that other framework. 17 SA 200, paragraphs A2-A3. 18 Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) or Accounting Standards, notified by the Central Government by publishing the same as the Companies (Accounting Standards) Rules, 2006, or the Accounting Standards for Local Bodies issued by the ICAI, as may be applicable.


SA 700 798

A10. The financial statements may, however, be prepared in accordance with one applicable financial reporting framework and, in addition, describe in the notes to the financial statements the extent to which the financial statements comply with another framework (e.g., financial statements prepared in accordance with the national framework that also describe the extent to which they comply with International Financial Reporting Standards). Such description is supplementary financial information and, as discussed in paragraph 47, is considered an integral part of the financial statements and, accordingly, is covered by the auditor’s opinion. Form of Opinion (Ref: Para. 18-19) A11. There may be cases where the financial statements, although prepared in accordance with the requirements of a fair presentation framework, do not achieve fair presentation. Where this is the case, it may be possible for management to include additional disclosures in the financial statements beyond those specifically required by the framework or, in extremely rare circumstances, to depart from a requirement in the framework in order to achieve fair presentation of the financial statements. A12. It will be extremely rare for the auditor to consider financial statements that are prepared in accordance with a compliance framework to be misleading if, in accordance with SA 210, the auditor determined that the framework is acceptable19. Auditor’s Report (Ref: Para. 20) A13. A written report encompasses reports issued in hard copy format and those using an electronic medium. A14. The Appendix contains illustrations of auditors’ reports on financial statements, incorporating the elements set forth in paragraphs 21-42. Auditor’s Report for Audits Conducted in Accordance with Standards on Auditing Title (Ref: Para. 21) A15. A title indicating the report is the report of an independent auditor, for example, “Independent Auditor’s Report”, affirms that the auditor has met all of the relevant ethical requirements regarding independence and, therefore, distinguishes the independent auditor’s report from reports issued by others. Addressee (Ref: Para. 22)

A16. The law or regulation applicable to the entity often specifies to whom 19 SA 210, “Agreeing the Terms of Audit Engagements”, paragraph 6(a).


SA 700 799

the auditor’s report is to be addressed. The auditor’s report is normally addressed to those for whom the report is prepared, often either to the shareholders or to those charged with governance of the entity whose financial statements are being audited. Introductory Paragraph (Ref: Para. 23)

A17. The introductory paragraph states, for example, that the auditor has audited the accompanying financial statements of the entity, which comprise [state the title of each financial statement comprising the complete set of financial statements required by the applicable financial reporting framework, specifying the date or period covered by each financial statement] and referring to the summary of significant accounting policies and other explanatory information. A18. When the auditor is aware that the audited financial statements will be included in a document that contains other information, such as an annual report, the auditor may consider, if the form of presentation allows, identifying the page numbers on which the audited financial statements are presented. This helps users to identify the financial statements to which the auditor’s report relates. A19. The auditor’s opinion covers the complete set of financial statements as defined by the applicable financial reporting framework. For example, in the case of many general purpose frameworks, the financial statements include: a Balance Sheet, Statement of Profit and Loss, a Cash Flow Statement, and a summary of significant accounting policies and other explanatory information. In case of some entities, additional information might also be considered to be an integral part of the financial statements. Management’s Responsibility for the Financial Statements (Ref: Para. 26) A20. SA 200 explains the premise, relating to the responsibilities of management and, where appropriate, those charged with governance, on which an audit in accordance with SAs is conducted20. Management and, where appropriate, those charged with governance are responsible for the preparation of the financial statements in accordance with the applicable financial reporting framework. For example, in the case of many general purpose frameworks, management is responsible for the preparation of financial statements that fairly present the financial position, financial performance and cash flows of the entity in accordance with those frameworks. This responsibility includes the design, implementation and 20 SA 200, paragraph 13(j).


SA 700 800

maintenance of internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In some cases, law or regulation prescribing management’s responsibilities may specifically refer to a responsibility for the adequacy of accounting books and records, or accounting system. As books, records and systems are an integral part of internal control (as defined in SA 31521) no specific reference is made to them in paragraph 26 for the description of management’s responsibilities. A21. There may be circumstances when it is appropriate for the auditor to add to the description of management’s responsibility in paragraph 26 to reflect additional responsibilities that are relevant to the preparation of the financial statements in the context of the particular jurisdiction or the nature of the entity. A22. SA 210 explains that, if law or regulation prescribes the responsibilities of management and, where appropriate, those charged with governance in relation to financial reporting, the auditor may determine that the law or regulation includes responsibilities that are equivalent in effect to those set out in SA 210. For such responsibilities that are equivalent, the auditor may use the wording of the law or regulation to describe them in the engagement letter or other suitable form of written agreement. For those that are not prescribed by law or regulation such that their effect is equivalent, the engagement letter or other suitable form of written agreement reflects the description in SA 21022. Auditor’s Responsibility (Ref: Para. 29-30)

A23. The auditor’s report states that the auditor’s responsibility is to express an opinion on the financial statements based on the audit in order to contrast it to management’s responsibility for the preparation of the financial statements. A24. The reference to the Standards used conveys to the users of the auditor’s report that the audit has been conducted in accordance with established Standards. A25. In accordance with SA 200, the auditor does not represent compliance with SAs in the auditor’s report unless the auditor has complied with the requirements of the SA 200 and all other SAs relevant to the audit23. 21 SA 315, “Identifying and Assessing the Risks of Material Misstatements Through Understanding the Entity and Its Environment”, paragraph 4(c). 22 SA 210, paragraph 6(b). 23 SA 200, paragraph 20.


SA 700 801

Auditor’s Opinion (Ref: Para. 35-37)

Wording of the auditor’s opinion prescribed by law or regulation A26. SA 210 explains that, in some cases, law or regulation prescribes the wording of the auditor’s report (which in particular includes the auditor’s opinion) in terms that are significantly different from the requirements of SAs. In these circumstances, SA 210 requires the auditor to evaluate: (a) Whether users might misunderstand the assurance obtained from the

audit of the financial statements and, if so, (b) Whether additional explanation in the auditor’s report can mitigate

possible misunderstanding. If the auditor concludes that additional explanation in the auditor’s report cannot mitigate possible misunderstanding, SA 210 requires the auditor not to accept the audit engagement, unless required by law or regulation to do so. In accordance with SA 210, an audit conducted in accordance with such law or regulation does not comply with SAs. Accordingly, the auditor does not include any reference in the auditor’s report to the audit having been conducted in accordance with Standards on Auditing24. “Present fairly, in all material respects” or “give a true and fair view”

A27. Whether the phrase “present fairly, in all material respects,” or the phrase “give a true and fair view” is used in any particular jurisdiction is determined by the law or regulation governing the audit of financial statements in that jurisdiction, or by generally accepted practice in that jurisdiction. Where law or regulation requires the use of different wording, this does not affect the requirement in paragraph 14 of this SA for the auditor to evaluate the fair presentation of financial statements prepared in accordance with a fair presentation framework.

Description of information that the financial statements present

A28. In the case of financial statements prepared in accordance with a fair presentation framework, the auditor’s opinion states that the financial statements present fairly, in all material respects, or give a true and fair view of the information that the financial statements are designed to present, for example, in the case of many general purpose frameworks, the financial position of the entity as at the end of the period and the entity’s financial performance and cash flows for the period then ended. 24 SA 210, paragraph 21.


SA 700 802

Description of the applicable financial reporting framework and how it may affect the auditor’s opinion

A29. The identification of the applicable financial reporting framework in the auditor’s opinion is intended to advise users of the auditor’s report of the context in which the auditor’s opinion is expressed; it is not intended to limit the evaluation required in paragraph 14. The applicable financial reporting framework is identified in such terms as:

“… in accordance with International Financial Reporting Standards” or

“… in accordance with accounting principles generally accepted in India…”

A30. When the applicable financial reporting framework encompasses financial reporting standards and legal or regulatory requirements, the framework is identified in such terms as “………..the information required by the Companies Act, 1956, in the manner so required and (give a true and fair view) in conformity with the accounting principles generally accepted in India”. SA 210 deals with circumstances where there are conflicts between the financial reporting standards and the legislative or regulatory requirements25. A31. As indicated in paragraph A8, the financial statements may be prepared in accordance with two financial reporting frameworks, which are therefore both applicable financial reporting frameworks. Accordingly, each framework is considered separately when forming the auditor’s opinion on the financial statements, and the auditor’s opinion in accordance with paragraphs 35-36 refers to both frameworks as follows: (a) If the financial statements comply with each of the frameworks

individually, two opinions are expressed: that is, that the financial statements are prepared in accordance with one of the applicable financial reporting frameworks (e.g., the national framework) and an opinion that the financial statements are prepared in accordance with the other applicable financial reporting framework (e.g., International Financial Reporting Standards). These opinions may be expressed separately or in a single sentence (e.g., the financial statements are presented fairly, in all material respects, in accordance with accounting principles generally accepted in India and with International Financial Reporting Standards).

(b) If the financial statements comply with one of the frameworks but fail to 25 SA 210, paragraph 18.


SA 700 803

comply with the other framework, an unmodified opinion can be given that the financial statements are prepared in accordance with the one framework (e.g., the national framework) but a modified opinion given with regard to the other framework (e.g., International Financial Reporting Standards) in accordance with SA 705.

A32. As indicated in paragraph A10, the financial statements may represent compliance with the applicable financial reporting framework and, in addition, disclose the extent of compliance with another financial reporting framework. As explained in paragraph A45, such supplementary information is covered by the auditor’s opinion as it cannot be clearly differentiated from the financial statements. (a) If the disclosure as to the compliance with the other framework is

misleading, a modified opinion is expressed in accordance with SA 705. (b) If the disclosure is not misleading, but the auditor judges it to be of such

importance that it is fundamental to the users’ understanding of the financial statements, an Emphasis of Matter paragraph is added in accordance with SA 706, drawing attention to the disclosure.

A32a. There can be situations where an entity or a class of entities obtains written permission from the Central Government of India or a regulator or by order of a court of law having jurisdiction to make such an order, to prepare its financial statements without meeting specific recognition, measurement, presentation or disclosure requirements of the applicable financial reporting framework. Such a change shall be treated as a modification of the financial reporting framework and not as inability of the auditor to obtain sufficient appropriate audit evidence. If the effect of this is material, the auditor shall describe in sufficient detail the resultant deviation from the financial reporting framework in an Emphasis of Matter paragraph in accordance with the SA 706. Other Reporting Responsibilities (Ref: Para. 38-39)

A33. In case of some entities, the auditor may have additional responsibilities to report on other matters that are supplementary to the auditor’s responsibility under the SAs to report on the financial statements. For example, the auditor may be asked to report certain matters if they come to the auditor’s attention during the course of the audit of the financial statements. Alternatively, the auditor may be asked to perform and report on additional specified procedures, or to express an opinion on specific matters, such as the adequacy of accounting books and records. Auditing standards often provide guidance on the auditor’s responsibilities with respect to specific additional reporting responsibilities in such situations.


SA 700 804

A34. In some cases, the relevant law or regulation may require or permit the auditor to report on these other responsibilities within the auditor’s report on the financial statements. In other cases, the auditor may be required or permitted to report on them in a separate report. A35. These other reporting responsibilities are addressed in a separate section of the auditor’s report in order to clearly distinguish them from the auditor’s responsibility under the SAs to report on the financial statements. Where relevant, this section may contain sub- heading(s) that describe(s) the content of the other reporting responsibility paragraph(s). Signature of the Auditor (Ref: Para. 40) A36. The report is signed by the auditor in his personal name. Where the firm is appointed as the auditor, the report is signed in the personal name of the auditor and in the name of the audit firm. The partner/proprietor signing the audit report also needs to mention the membership number assigned by the Institute of Chartered Accountants of India. They also include the registration number of the firm, wherever applicable, as allotted by ICAI, in the audit reports signed by them26. Date of the Auditor’s Report (Ref: Para. 41) A37. The date of the auditor’s report informs the user of the auditor’s report that the auditor has considered the effect of events and transactions of which the auditor became aware and that occurred up to that date. The auditor’s responsibility for events and transactions after the date of the auditor’s report is addressed in SA 56027. 26 The Council of the ICAI, at its 292nd meeting held in January 2010, decided to require the members of the ICAI to include, in addition to the other requirements relating to signature on the audit report, as prescribed under the relevant Standard on Auditing, the registration number of the firm as allotted by ICAI, in the audit reports signed by them, and ensure that the resolution passed by the company regarding appointment of the statutory auditor of the company under section 224 of the Companies Act, 1956, also contain the registration number of the firm of the auditor(s) with the ICAI. These requirements came into effect from April 1, 2010. Subsequently, the Council of the ICAI, at its 296th meeting held in June 2010, decided to extend the requirement to mention the firm registration number to all reports issued pursuant to any attestation engagement, including certificates, issued by the members as proprietor of/ partner in the said firm. The requirement applies where such firm registration number has been allotted by the ICAI. The Council further decided to make this requirement effective for all attestation reports/ certificates issued on or after 1st October, 2010. The complete text of the Announcement is published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook. 27 SA 560, “Subsequent Events,” paragraphs 10-17.


SA 700 805

A38. Since the auditor’s opinion is provided on the financial statements and the financial statements are the responsibility of management, the auditor is not in a position to conclude that sufficient appropriate audit evidence has been obtained until evidence is obtained that all the statements that comprise the financial statements, including the related notes, have been prepared and management has accepted responsibility for them. A39. In case of some entities, the applicable law or regulation identifies the individuals or bodies (e.g., the directors) that are responsible for concluding that all the statements that comprise the financial statements, including the related notes, have been prepared, and specifies the necessary approval process. In such cases, evidence is obtained of that approval before dating the report on the financial statements. In case of some other entities, however, the approval process is not prescribed in law or regulation. In such cases, the procedures the entity follows in preparing and finalising its financial statements in view of its management and governance structures is considered in order to identify the individuals or body with the authority to conclude that all the statements that comprise the financial statements, including the related notes, have been prepared. In some cases, law or regulation identifies the point in the financial statement reporting process at which the audit is expected to be complete. A40. In some entities, final approval of the financial statements by shareholders is required before the financial statements are issued publicly. In these entities, final approval by shareholders is not necessary for the auditor to conclude that sufficient appropriate audit evidence has been obtained. The date of approval of the financial statements for purposes of SAs is the earlier date on which those with the recognised authority determine that all the statements that comprise the financial statements, including the related notes, have been prepared and that those with the recognised authority have asserted that they have taken responsibility for them. Auditor’s Report Prescribed by Law or Regulation (Ref: Para. 43)

A41. SA 200 explains that the auditor may be required to comply with legal or regulatory requirements in addition to SAs28. Where this is the case, the auditor may be obliged to use a layout or wording in the auditor’s report that differs from that described in this SA. As explained in paragraph 4, consistency in the auditor’s report, when the audit has been conducted in accordance with SAs, promotes credibility in the global marketplace by making more readily identifiable those audits that have been conducted in 28 SA 200, paragraph A55.


SA 700 806

accordance with globally recognised standards. When the differences between the legal or regulatory requirements and SAs relate only to the layout and wording of the auditor’s report and, at a minimum, each of the elements identified in paragraph 43(a)-(i) are included in the auditor’s report, the auditor’s report may refer to Standards on Auditing. Accordingly, in such circumstances the auditor is considered to have complied with the requirements of SAs, even when the layout and wording used in the auditor’s report are specified by legal or regulatory reporting requirements. Where specific requirements in a particular law or regulation do not conflict with SAs, adoption of the layout and wording used in this SA assists users of the auditor’s report more readily to recognise the auditor’s report as a report on an audit conducted in accordance with SAs. (SA 210 deals with circumstances where law or regulation prescribes the layout or wording of the auditor’s report in terms that are significantly different from the requirements of SAs).

Auditor’s Report for Audits Conducted in Accordance with Both Auditing Standards issued by the Institute of Chartered Accountants of India (national auditing standards) and International Standards on Auditing (Ref: Para. 44)

A42. The auditor may refer in the auditor’s report to the audit having been conducted in accordance with both International Standards on Auditing as well as the national auditing standards, i.e., the Standards on Auditing issued by the Institute of Chartered Accountants of India when, in addition to complying with the national auditing standards, the auditor complies with each of the ISAs relevant to the audit.

A43. A reference to both International Standards on Auditing and the national auditing standards is not appropriate if there is a conflict between the requirements in ISAs and those in the national auditing standards that would lead the auditor to form a different opinion or not to include an Emphasis of Matter paragraph that, in the particular circumstances, is required by ISAs. In such a case, the auditor’s report refers only to the auditing standards (either International Standards on Auditing or the national auditing standards) in accordance with which the auditor’s report has been prepared.

Supplementary Information Presented with the Financial Statements (Ref: Para. 46-47)

A44. In some circumstances, the entity may be required by law, regulation or


SA 700 807

Standards, or may voluntarily choose, to present together with the financial statements supplementary information that is not required by the applicable financial reporting framework. For example, supplementary information might be presented to enhance a user’s understanding of the applicable financial reporting framework or to provide further explanation of specific financial statement items. Such information is normally presented in either supplementary schedules or as additional notes.

A45. The auditor’s opinion covers supplementary information that cannot be clearly differentiated from the financial statements because of its nature and how it is presented. For example, this would be the case when the notes to the financial statements include an explanation of the extent to which the financial statements comply with another financial reporting framework. The auditor’s opinion would also cover notes or supplementary schedules that are cross-referenced from the financial statements.

A46. Supplementary information that is covered by the auditor’s opinion does not need to be specifically referred to in the introductory paragraph of the auditor’s report when the reference to the notes in the description of the statements that comprise the financial statements in the introductory paragraph is sufficient.

A47. The law or regulation applicable to the entity may not require that the supplementary information be audited, and management may decide not to ask the auditor to include the supplementary information within the scope of the audit of the financial statements.

A48. The auditor’s evaluation whether unaudited supplementary information is presented in a manner that could be construed as being covered by the auditor’s opinion includes, for example, where that information is presented in relation to the financial statements and any audited supplementary information, and whether it is clearly labeled as “unaudited”.

A49. Management could change the presentation of unaudited supplementary information that could be construed as being covered by the auditor’s opinion, for example, by:

• Removing any cross references from the financial statements to unaudited supplementary schedules or unaudited notes so that the demarcation between the audited and unaudited information is sufficiently clear.


SA 700 808

• Placing the unaudited supplementary information outside of the financial statements or, if that is not possible in the circumstances, at a minimum, place the unaudited notes together at the end of the required notes to the financial statements and clearly label them as unaudited. Unaudited notes that are intermingled with the audited notes can be misinterpreted as being audited.

A50. The fact that supplementary information is unaudited does not relieve the auditor of the responsibility to read that information to identify material inconsistencies with the audited financial statements. The auditor’s responsibilities with respect to unaudited supplementary information are consistent with those described in SA 72029.

Material Modifications vis-a-vis ISA 700, “Forming an Opinion and Reporting on Financial Statements” Additions

1. Paragraph 9 of ISA 700 explains what constitutes the International Financial Reporting Standards (IFRS) for the ISA 700. Since in India, financial reporting standards, used for the preparation and presentation of financial statements, can be ‘Accounting Standards promulgated by the Accounting Standards Board (ASB) of the Institute of Chartered Accountants of India or Accounting Standards, notified by the Central Government by publishing the same as Companies (Accounting Standards) Rules, 2006’ or ‘Accounting Standards for Local Bodies promulgated by the Committee on Accounting Standards for Local Bodies (CASLB) of the Institute of Chartered Accountants of India (ICAI)’, the paragraph 9 has accordingly been changed. Corresponding changes have also been made at the relevant places of the Standard.

2. Paragraph 42 of ISA 700 states that the auditor’s report shall name the location in the jurisdiction where the auditor practices. Since the practices prevailing in India requires the auditor to mention the “Place of Signature” instead of the “Auditor’s Address” in the auditor’s report, the requirement of mentioning the auditor’s address has been replaced with the place of signature, which is the name of specific location, which

29 SA 720, “The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements”.


SA 700 809

is ordinarily the city where the audit report is signed. Corresponding changes have also been made at the relevant places of the Standard.

3. Paragraph A36 of ISA 700 explains who is eligible for signing the auditor’s report in the different situations. Since in India, audit report may be signed by the auditor in his personal name in case of sole practitioner and where the firm is appointed as the auditor, the report may be signed in the personal name of the auditor and in the name of the audit firm, the paragraph has accordingly been changed. Since as per the Indian practice, the partner/proprietor signing the audit report also needs to mention the firm registration number, wherever applicable, and the membership number assigned by the Institute of Chartered Accountants of India, the said requirement has also been incorporated in the paragraph A36 of SA 700 (Revised).


SA 700 810

Appendix

(Ref: Para. A14)

Illustrative Formats of Auditors’ Reports on Financial Statements Illustration 1: Circumstances include the following: • Audit of a complete set of separate general purpose financial

statements of a company prepared under the Companies Act, 1956 financial reporting framework, which is a fair presentation framework.

• The terms of the audit engagement reflect description of management’s responsibility for the financial statements in SA 210.

• The report is unmodified and does not include either an Emphasis of Matter paragraph or an Other Matter(s) paragraph.

• In addition to the audit of financial statements, the auditor has other reporting responsibilities required under the Companies Act, 1956 and/or other regulatory requirements.

INDEPENDENT AUDITOR’S REPORT

To the Members of ABC Company Limited Report on the Financial Statements We have audited the accompanying financial statements of ABC Company Limited (“the Company”), which comprise the Balance Sheet as at March 31, 20XX, and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956 (“the Act”). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material


SA 700 811

misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control30. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 20XX; (b) in the case of the Profit and Loss Account, of the profit/ loss for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows for the year 30 The underlined text has been added pursuant to decision of Council of ICAI taken at its 329th adjourned meeting held in January 2014. The complete text of the Announcement in this regard has been published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook.


SA 700 812

ended on that date. Report on Other Legal and Regulatory Requirements 1. As required by the Companies (Auditor’s Report) Order, 2003 (“the Order”) issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order. 2. As required by section 227(3) of the Act, we report that: a. we have obtained all the information and explanations which to the best of

our knowledge and belief were necessary for the purpose of our audit;

b. in our opinion proper books of account as required by law have been kept by the Company so far as appears from our examination of those books [and proper returns adequate for the purposes of our audit have been received from branches not visited by us]31;

c. the report on the accounts of the branch offices audited under section 228 by a person other than the company’s auditor has been forwarded to us as required by clause (c) of sub-section (3) of section 228 and have been dealt with in preparing our report in the manner considered necessary by us32;

d. the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement dealt with by this Report are in agreement with the books of account [and with the returns received from branches not visited by us]33;

e. in our opinion, the Balance Sheet, Statement of Profit and Loss, and Cash Flow Statement comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

f. on the basis of written representations received from the directors as on March 31, 20XX, and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 20XX, from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956.

31 To be included if relevant. 32 The underlined text has been added pursuant to decision of Council of ICAI taken at its 329th adjourned meeting held in January 2014. The complete text of the Announcement in this regard has been published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook. 33 To be included if relevant.


SA 700 813

g. Since the Central Government has not issued any notification as to the rate at which the cess is to be paid under section 441A of the Companies Act, 1956 nor has it issued any Rules under the said section, prescribing the manner in which such cess is to be paid, no cess is due and payable by the Company.34

For XYZ and Co. Chartered Accountants

Firm’s Registration Number

Signature (Name of the Member Signing the Audit Report)

(Designation35) Membership Number

Place of Signature

Date 34 Attention of the readers is invited to the Announcement issued by the Council of the ICAI (pursuant to a decision taken in this regard at its 312th meeting held in December, 2011) regarding the auditor’s reporting responsibilities pursuant to clause 4(ix)(a) of the Companies (Auditor’s Report) Order, 2003 and section 227(3)(g) of the Companies Act, 1956 wrt the cess payable under Section 441A of the Companies Act, 1956. Pursuant to the said Announcement, since the operative date of section 227 (3)(g) has not yet been notified by the Central Government, the statutory auditor’s report need not contain any comment on section 227 (3)(g) of the Companies Act, 1956. The complete text of the Announcement is published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook. 35 Partner or Proprietor, as the case may be.


SA 700 814

Illustration 2: Circumstances include the following: • Audit of a complete set of consolidated general purpose financial

statements of a parent company prepared under accounting principles generally accepted in India, as required for compliance with SEBI’s regulatory requirement, which is a fair presentation framework.

• The terms of the group audit engagement reflect description of management’s responsibility for the financial statements in SA 210.


INDEPENDENT AUDITOR’S REPORT To the Board of Directors of ABC Company Limited We36 have audited the accompanying consolidated financial statements of ABC Company Limited (“the Company”) and its subsidiaries, which comprise the consolidated Balance Sheet as at March 31, 20XX, and the consolidated Statement of Profit and Loss and the consolidated Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation of these consolidated financial statements that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Company in accordance with accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the consolidated financial 36 As there is no reporting on ‘Other Legal and Regulatory Requirements’, there is no necessity of including the heading ‘Report on the Financial Statements’ above the introductory paragraph.


SA 700 815

statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and presentation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control37. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) in the case of the consolidated Balance Sheet, of the state of affairs of the Company as at March 31, 20XX; 37 The underlined text has been added pursuant to decision of Council of ICAI taken at its 329th adjourned meeting held in January 2014. The complete text of the Announcement in this regard has been published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook.


SA 700 816

(b) in the case of the consolidated Profit and Loss Account, of the profit/ loss for the year ended on that date; and

(c) in the case of the consolidated Cash Flow Statement, of the cash flows for the year ended on that date.





Place of Signature

Date

38 Partner or Proprietor, as the case may be.


SA 700 817

Illustration 3: Circumstances include the following: • Audit of a complete set of separate general purpose financial

statements of an entity prepared in accordance with the requirements of XYZ Law of India under a compliance framework.

• The terms of the audit engagement reflect the description of management’s responsibility for the financial statements in SA 210.


INDEPENDENT AUDITOR’S REPORT [Appropriate Addressee] We39 have audited the accompanying financial statements of ABC and Associates, which comprise the Balance Sheet as at March 31, 20XX, and the Profit and Loss Account40 for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of these financial statements in accordance with XYZ Law of India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected 39 As there is no reporting on ‘Other Legal and Regulatory Requirements’, there is no necessity of including the heading ‘Report on the Financial Statements’ above the introductory paragraph. 40 Provide titles of all financial statements that comprise a full set of financial statements required by XYZ Law of India.


SA 700 818

depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control41. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion42 In our opinion and to the best of our information and according to the explanations given to us, the financial statements of ABC and Associates for the year ended March 31, 20XX are prepared, in all material respects, in accordance with XYZ Law of India.





Place of Signature

Date 41 The underlined text has been added pursuant to decision of Council of ICAI taken at its 329th adjourned meeting held in January 2014. The complete text of the Announcement in this regard has been published in Paragraph ‘C’, “Announcements/Clarifications” of Section 1, “Announcements of the Council regarding Status of Various Documents issued by the Institute of Chartered Accountants of India”, included in Volume I.A of the Handbook. 42 Note that the opinion excludes the words ‘true and fair’ as this report is not under a fair presentation framework

43 Partner or Proprietor, as the case may be.


SA 700 819

Illustrative Format of Independent Auditor’s Report on the Standalone Financial Statements of a Company under the Companies Act, 2013 and the Rules Thereunder

Illustration 444: Circumstances include the following:

• Audit of a complete set of standalone general purpose financial statements of a company prepared under the Companies Act, 2013 financial reporting framework.

• The terms of audit engagement reflect description of management’s responsibility for the financial statements in SA 210, Agreeing the Terms of Audit Engagement.

• The independent auditor: Has given an Unmodified Opinion in respect of true and fair view

of the financial statements; and Has given Emphasis of Matter paragraphs in respect of:

o A lawsuit against the Company, the result of which is uncertain.

o A “material uncertainty” relating to going concern which has been adequately disclosed in the notes to the financial statements.

• In addition to expressing opinion on the true and fair view of the financial statements, the auditor has other reporting responsibilities required under the Companies Act 2013 and/or other regulatory requirements, including the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013.

INDEPENDENT AUDITOR’S REPORT

44 This illustration has been added pursuant to decision of the Council of ICAI taken at its meeting held in November 2014. The complete text of the Announcement in this regard has been hosted on ICAI’s website.


SA 700 820

TO THE MEMBERS OF ABC COMPANY LIMITED

Report on the Standalone45 Financial Statements We have audited the accompanying standalone financial statements of ABC Company Ltd. (“the Company”), which comprise the Balance Sheet as at 31st March, 20XX, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information, [in which are incorporated the Returns for the year ended on that date audited by the branch auditors of the Company’s branches at (location of the branches)]46.

Management’s Responsibility for the Standalone Financial Statements The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these standalone financial statements based on our audit. 45 Where the Company does not have any requirement to prepare consolidated financial statements under the Companies Act 2013, in the auditor’s report, the term “Standalone financial statements”, wherever appearing, would be replaced by the term “financial statements”. 46 Where applicable


SA 700 821

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 20XX, and its profit/loss and its cash flows for the year ended on that date.

Emphasis of Matters We draw attention to the following matters in the Notes to the financial statements:

a) Note X to the financial statements which, describes the uncertainty related to the outcome of the lawsuit filed against the Company by XYZ Company.


SA 700 822

b) Note Y in the financial statements which indicates that the Company has accumulated losses and its net worth has been fully / substantially eroded, the Company has incurred a net loss/net cash loss during the current and previous year(s) and, the Company’s current liabilities exceeded its current assets as at the balance sheet date. These conditions, along with other matters set forth in Note Y, indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note.

Our opinion is not modified in respect of these matters.

Other Matter47

We did not audit the financial statements/information of ________(number) branches included in the standalone financial statements of the Company whose financial statements / financial information reflect total assets of Rs.______ as at 31st March, 20XX and total revenues of Rs._______ for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors.

Our opinion is not modified in respect of this matter.

Report on Other Legal and Regulatory Requirements

As required by Section 143 (3) of the Act, we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books [and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.48]

47 Where applicable. 48 Where applicable.


SA 700 823

c) [The reports on the accounts of the branch offices of the Company audited under Section 143 (8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report49.]

d) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account [and with the returns received from the branches not visited by us50].

e) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

f) The going concern matter described in sub-paragraph (b) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

g) On the basis of the written representations received from the directors as on 31st March, 20XX taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 20XX from being appointed as a director in terms of Section 164 (2) of the Act.

h) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”.

i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note XX to the financial statements; [or the Company does not have any pending litigations which would impact its financial position51]

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts – Refer Note XX to

49 Where applicable. 50 Where applicable. 51 As may be applicable.


SA 700 824

the financial statements; [or the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.52]

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company {or, following are the instances of delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company or there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company53}.

For XYZ & Co Chartered Accountants

(Firm’s Registration No.) Signature

(Xxxxx X. Xxxx) (Designation54)

(Membership No. XXXXX)

Place of Signature:

Date:

52 As may be applicable. 53 As may be applicable. 54 Partner or Proprietor, as the case may be


SA 700 825

Illustrative Format of Independent Auditor’s Report on the Standalone Financial Statements of a Company under the Companies Act, 2013 and the Rules Thereunder Illustration 555: Circumstances include the following:

• Audit of a complete set of standalone general purpose financial statements of a company prepared under the Companies Act, 2013 financial reporting framework.

• The terms of audit engagement reflect description of management’s responsibility for the financial statements in SA 210, Agreeing the Terms of Audit Engagement.

• The independent auditor:

Has given an Unmodified Opinion in respect of the true and fair view of the financial statements; and

Has given Emphasis of Matter paragraphs in respect of:

o A lawsuit against the Company, the result of which is uncertain

o A “material uncertainty” relating to going concern which has been adequately disclosed in the notes to the financial statements

• In addition to expressing opinion on the true and fair view of the financial statements, the auditor has other reporting responsibilities required under the Companies Act 2013 and/or other regulatory requirements, but does not have the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ABC COMPANY LIMITED Report on the Standalone56 Financial Statements 55 This illustration has been added pursuant to decision of the Council of ICAI taken at its meeting held in November 2014. The complete text of the Announcement in this regard has been hosted on ICAI’s website. 56 Where the Company does not have any requirement to prepare consolidated financial statements under the Companies Act 2013, the word “Standalone” need not be used here.


SA 700 826

We have audited the accompanying standalone financial statements of ABC Company Limited (“the Company”), which comprise the Balance Sheet as at 31st March, 20XX, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information, [in which are incorporated the Returns for the year ended on that date audited by the branch auditors of the Company’s branches at (location of the branches)]57.

Management’s Responsibility for the Standalone Financial Statements The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these standalone financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable 57 Where applicable


SA 700 827

assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 20XX, and its profit/loss and its cash flows for the year ended on that date.

Emphasis of Matters We draw attention to the following matters in the Notes to the financial statements:

a) Note X to the financial statements which, describes the uncertainty related to the outcome of the lawsuit filed against the Company by XYZ Company.

b) Note Y in the financial statements which indicates that the Company has accumulated losses and its net worth has been fully / substantially eroded, the Company has incurred a net loss/net cash loss during the current and previous year(s) and, the Company’s current liabilities exceeded its current assets as at the balance sheet date. These conditions, along with other


SA 700 828

matters set forth in Note Y, indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. However, the financial statements of the Company have been prepared on a going concern basis for the reasons stated in the said Note.

Our opinion is not modified in respect of these matters.

Other Matter58 We did not audit the financial statements/information of ________(number) branches included in the standalone financial statements of the Company whose financial statements / financial information reflect total assets of Rs.______ as at 31st March, 20XX and total revenues of Rs._______ for the year ended on that date, as considered in the standalone financial statements. The financial statements/information of these branches have been audited by the branch auditors whose reports have been furnished to us, and our opinion in so far as it relates to the amounts and disclosures included in respect of these branches, is based solely on the report of such branch auditors.



As required by Section 143 (3) of the Act, we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books [and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.59]

c) [The reports on the accounts of the branch offices of the Company audited under Section 143 (8) of the Act by branch auditors have been sent to us and have been properly dealt with by us in preparing this report60.]

58 Where applicable. 59 Where applicable. 60 Where applicable.


SA 700 829

d) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account [and with the returns received from the branches not visited by us61].

e) In our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

f) The going concern matter described in sub-paragraph (b) under the Emphasis of Matters paragraph above, in our opinion, may have an adverse effect on the functioning of the Company.

g) On the basis of the written representations received from the directors as on 31st March, 20XX taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 20XX from being appointed as a director in terms of Section 164 (2) of the Act.

h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The Company has disclosed the impact of pending litigations on its financial position in its financial statements – Refer Note XX to the financial statements; [or the Company does not have any pending litigations which would impact its financial position62]

ii. The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts – Refer Note XX to the financial statements; [or the Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.63]

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Company {or, following are the instances of delay in transferring

61 Where applicable. 62 As may be applicable. 63 As may be applicable.


SA 700 830

amounts, required to be transferred, to the Investor Education and Protection Fund by the Company or there were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company64}.

For XYZ & Co Chartered Accountants

(Firm’s Registration No.)

Signature

(Xxxxx X. Xxxx) (Designation65)


Place of Signature:

Date:

64 As may be applicable. 65 Partner or Proprietor, as the case may be


SA 700 831

Unmodified Opinion on the Consolidated Financial Statements Illustrative Format of Independent Auditor’s Report on The Consolidated Financial Statements of a Group Under The Companies Act, 2013 and the Rules Thereunder

Illustration 666:

Note:

The following illustrative format is based on the assumptions that:

The Group has:

• Certain components which have been audited by auditor/s other than the Principal Auditor and such component/s is/ are material to the consolidated financial statements of the Group. The auditors of such components which are Indian companies, there is no requirement to report on section 143(3)(i) of the Companies Act, 2013 and they did not have any matter to report under section 143(3)(f) of the Companies Act, 2013.

• Certain components which are unaudited and such component/s is/ are not material to the consolidated financial statements of the Group.

The independent auditor of Consolidated Financial Statements:

• Gives an Unmodified Opinion on the consolidated financial statements

• Disclosed the aforementioned facts about the Components in the “Other Matters” Paragraph in accordance with the Announcement issued by the Auditing and Assurance Standards Board under the authority of the Council of ICAI in February 2014

• Does not have the responsibility to report on internal financial controls pursuant to section 143(3)(i) of the Companies Act 2013.

66 This illustration has been added pursuant to decision of the Council of ICAI taken at its meeting held in April 2015. The complete text of the Announcement in this regard has been hosted on ICAI’s website.


SA 700 832

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ABC COMPANY LIMITED

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of ABC Company Limited (hereinafter referred to as “the Holding Company”) and its subsidiaries (the Holding Company and its subsidiaries together referred to as “the Group”)its associates and jointly controlled entities , comprising of the Consolidated Balance Sheet as at 31st March, 20XX, the Consolidated Statement of Profit and Loss, the Consolidated Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as “the consolidated financial statements”).

Management’s Responsibility for the Consolidated Financial Statements

The Holding Company’s Board of Directors is responsible for the preparation of these consolidated financial statements in terms of the requirements of the Companies Act, 2013 (hereinafter referred to as “the Act”)that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group including its Associates and Jointly controlled entities in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. The respective Board of Directors of the companies included in the Group and of its associates and jointly controlled entities are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used


SA 700 833

for the purpose of preparation of the consolidated financial statements by the Directors of the Holding Company, as aforesaid.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. While conducting the audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Holding Company’s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on whether the Holding Company has an adequate internal financial controls system over financial reporting in place and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Holding Company’s Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence obtained by us and the audit evidence obtained by the other auditors in terms of their reports referred to in sub-paragraph (a) of the Other Matters paragraph below, is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.


SA 700 834

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid consolidated financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the consolidated state of affairs of the Group, its associates and jointly controlled entities as at 31st March, 20XX, and their consolidated profit/loss and their consolidated cash flows for the year ended on that date.

Emphasis of Matter

We draw attention to Note X to the consolidated financial statements which, describes the uncertainty related to the outcome of the lawsuit filed against the Holding Company by XYZ Company.


Other Matters

(a) We did not audit the financial statements / financial information of ______ subsidiaries, and ______ jointly controlled entities, whose financial statements / financial information reflect total assets of Rs.______ as at 31st March, 20XX, total revenues of Rs._______ and net cash flows amounting to Rs.______ for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Group’s share of net profit/loss of Rs. _____ for the year ended 31st March, 20XX, as considered in the consolidated financial statements, in respect of ____associates, whose financial statements / financial information have not been audited by us. These financial statements / financial information have been audited by other auditors whose reports have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, jointly controlled entities and associates, and our report in terms of sub-sections (3) and (11) of Section 143 of the Act, insofar as it relates to the aforesaid subsidiaries, jointly controlled entities and associates, is based solely on the reports of the other auditors.

(b) We did not audit the financial statements / financial information of ______ subsidiaries and ______ jointly controlled entities, whose financial


SA 700 835

statements / financial information reflect total assets of Rs.______ as at 31st March, 20XX, total revenues of Rs._______ and net cash flows amounting to Rs.______ for the year ended on that date, as considered in the consolidated financial statements. The consolidated financial statements also include the Group’s share of net profit/loss of Rs. _____ for the year ended 31st March, 20XX, as considered in the consolidated financial statements, in respect of ____associates, whose financial statements / financial information have not been audited by us. These financial statements / financial information are unaudited and have been furnished to us by the Management and our opinion on the consolidated financial statements, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries, jointly controlled entities and associates, and our report in terms of sub-sections (3) and (11) of Section 143 of the Act in so far as it relates to the aforesaid subsidiaries, jointly controlled entities and associates, is based solely on such unaudited financial statements / financial information. In our opinion and according to the information and explanations given to us by the Management, these financial statements / financial information are not material to the Group.

Our opinion on the consolidated financial statements, and our report on Other Legal and Regulatory Requirements below, is not modified in respect of the above matters with respect to our reliance on the work done and the reports of the other auditors and the financial statements / financial information certified by the Management.


1. As required by the Companies (Auditor’s Report) Order, 2015 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of Section 143 of the Act, based on the comments in the auditors’ reports of the Holding company, subsidiary companies, associate companies and jointly controlled companies incorporated in India, we give in the Annexure a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2. As required by Section143(3) of the Act, we report, to the extent applicable, that:


SA 700 836

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated financial statements.

(b) In our opinion, proper books of account as required by law relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and the reports of the other auditors.

(c) The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss, and the Consolidated Cash Flow Statement dealt with by this Report are in agreement with the relevant books of account maintained for the purpose of preparation of the consolidated financial statements.

(d) In our opinion, the aforesaid consolidated financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

(e) On the basis of the written representations received from the directors of the Holding Company as on 31st March, 20XX taken on record by the Board of Directors of the Holding Company and the reports of the statutory auditors of its subsidiary companies, associate companies and jointly controlled companies incorporated in India, none of the directors of the Group companies, its associate companies and jointly controlled companies incorporated in India is disqualified as on 31st March, 20XX from being appointed as a director in terms of Section 164 (2) of the Act.

(f) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditor’s) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

i. The consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the Group, its associates and jointly controlled entities– Refer Note XX to the consolidated financial statements.

Or


SA 700 837

There were no pending litigations which would impact the consolidated financial position of the Group, its associates and jointly controlled entities.67

ii. Provision has been made in the consolidated financial statements, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts – Refer (a) Note XX to the consolidated financial statements in respect of such items as it relates to the Group, its associates and jointly controlled entities and (b) the Group’s share of net profit/loss in respect of its associates.

Or

The Group, its associates and jointly controlled entities did not have any material foreseeable losses on long-term contracts including derivative contracts.68

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Holding Company and its subsidiary companies, associate companies and jointly controlled companies incorporated in India.

Or

Following are the instances of delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Holding Company, and its subsidiary companies, associate companies and jointly controlled companies incorporated in India69.

Or

There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Holding Company, and its subsidiary companies, associate companies and jointly controlled companies incorporated in India70.

67Where applicable. 68Where applicable. 69Where applicable. 70Where applicable.


SA 700 838

Place of Signature:

Date:

For XYZ & Co

Chartered Accountants

(Firm’s Registration No.)

Signature

(Name of the Member Signing the Audit Report)

(Designation71)


71Partner or Proprietor